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A.I.G. Rejects Shareholder Suit

By Vikas Bajaj January 9, 2013 5:41 pmJanuary 9, 2013 5:41 pm

The American International Group has wisely chosen to avoid joining a shareholder lawsuit against government agencies that bailed it out with $182 billion in loans and capital. In an unequivocal statement released Wednesday afternoon, the company said its board would not join a case brought by Starr International, the investment vehicle controlled by A.I.G.’s former top executive Maurice “Hank” Greenberg, in courts in New York and Washington.

“The AIG Board has determined to refuse Starr’s demand in its entirety,” the company said, “and will neither pursue these claims itself nor permit Starr to pursue them in AIG’s name.”

Mr. Greenberg’s lawsuit, which demands $25 billion in damages against the government, has always smacked of opportunism. Instead of suing the executives and directors responsible for A.I.G.’s financial problems, he chose to go after the government, which saved the company, because it clearly has more money at its disposal than former A.I.G. officials.
The company’s decision will not immediately affect the case but it will likely bolster the government’s position that the terms of the bailout did not amount to a violation of the Fifth Amendment (which prohibits the government from taking private property without just compensation). As my colleague Peter Eavis pointed out in a recent post on Dealbook, a strong argument can be made that the government was more than fair to A.I.G. and its shareholders by easing the terms of its initial bailout.

Nobody wanted the government to bail out A.I.G. – least of all taxpayers. It’s true that the Treasury recently reported making a “positive return” of $22.7 billion on its investment. But it could have easily lost money on A.I.G. had the recession been more prolonged than it was, or had the housing market not recovered as fast as it did. The United States Treasury and the Federal Reserve Bank of New York did not step in for the sake of making a profit, in the manner of private equity funds. They helped the insurance giant because its collapse would have destabilized the whole economy.

Now that A.I.G. is back on its feet, the last thing it needs to do is sue the institutions that helped get it there.